UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
Commission file number 1-4976
USL Capital Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-1360891
(State of Incorporation) (I.R.S. Employer Identification No.)
733 Front Street, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 627-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of November 14, 1995, the Registrant had outstanding 10 shares of
Common Stock, all of which were owned by Ford Holdings, Inc.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b), AND IS THEREFORE FILING THIS FORM 10-Q WITH REDUCED
DISCLOSURE FORMAT.
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1995 and December 31, 1994 .............3
Consolidated Statements of Income --
Three and Nine months ended September 30, 1995
and 1994 .............................................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1994 ........5
Notes to Condensed Consolidated
Financial Statements .................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........7
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K ....................10
Signatures ..........................................11
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
[CAPTION]
(Unaudited)
September 30, December 31,
(In thousands) 1995 1994
----------- ---------
ASSETS
Cash and equivalents $ 26,192 $ 16,226
Investment in finance leases 2,456,473 2,435,429
Notes receivable 917,724 824,619
Investment in operating leases 779,278 711,602
Investment in leveraged leases 375,383 266,392
Investment in securities 930,375 700,355
Inventory held for sale or lease 82,288 86,816
Other receivables 13,686 18,335
Investment in associated companies 17,475 17,838
Office facilities at cost less accumulated
depreciation 8,483 8,772
Goodwill 179,012 183,395
Other assets 18,950 20,439
------ ------
Total assets $ 5,805,319 $5,290,218
========= =========
LIABILITIES
Short-term notes payable $ 1,596,908 $1,337,601
Accounts payable 42,836 58,078
Accrued liabilities and lease deposits 125,179 113,847
Payable to Ford and affiliates 26,969 134,763
Deferred taxes on income 487,070 424,301
Long-term debt 2,691,627 2,478,547
--------- ---------
Total liabilities 4,970,589 4,547,137
--------- ---------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDER'S EQUITY
Common stock * *
Additional capital 521,425 521,425
Net unrealized gain/(loss) on
available-for-sale securities 1,288 (3,560)
Retained earnings 312,017 225,216
------- -------
Total shareholder's equity 834,730 743,081
------- -------
Total liabilities and shareholder's equity $5,805,319 $5,290,218
========= =========
*Less than one thousand dollars
- ----------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited; in thousands) 1995 1994 1995 1994
-------- -------- -------- --------
REVENUES $168,221 $149,058 $488,444 $439,710
-------- -------- -------- --------
EXPENSES
Sales, administrative and general 17,035 15,913 50,955 47,715
Interest 70,683 55,503 204,761 160,793
Depreciation -- operating leases 28,377 29,149 86,770 93,233
Other 7,180 9,602 19,867 28,471
----- ----- ------ ------
Total expenses 123,275 110,167 362,353 330,212
------- ------- ------- -------
Income before taxes on income 44,946 38,891 126,091 109,498
Taxes on income 13,651 12,233 39,291 34,866
------ ------ ------ ------
NET INCOME $ 31,295 $ 26,658 $ 86,800 $ 74,632
======= ======= ====== ======
- -----------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(Unaudited; in thousands) 1995 1994
------- ------
Net cash flow from operating activities $ 248,054 $ 214,617
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests 526,436 472,987
Proceeds from sale of finance receivables - 67,581
Cost of equipment acquired for lease (824,685) (618,318)
Notes receivable investments (215,828) (154,642)
Collections on notes receivable investments 145,948 111,034
Purchase of held-to-maturity securities (60,629) (66,555)
Maturity of held-to-maturity securities 41,185 27,620
Purchase of available-for-sale securities (162,773) (28,922)
Sale and maturity of available-for-sale securities 14,804 7,257
Purchase of other equity securities not subject to
SFAS 115 (57,679) -
Increase in deferred initial direct costs (9,622) (6,412)
Other (7,634) (8,490)
------ ------
Net cash used in investing activities (610,477) (196,860)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 556,765 112,592
Long-term debt repaid (343,684) (187,662)
Net increase in short-term borrowings 259,308 58,736
Dividend to parent (100,000) -
-------- ------
Net cash provided by/(used in) financing
activities 372,389 (16,334)
------- -------
Increase in cash and equivalents 9,966 1,423
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 16,226 6,708
------ -----
CASH AND EQUIVALENTS AT END OF PERIOD $ 26,192 $ 8,131
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 189,752 $ 150,219
Income taxes paid 488 517
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Accrued interest on bond accretion and notes
receivable added to principal $ 5,744 $ 1,236
Lease equipment transferred to inventory held
for sale or lease 3,972 2,947
Fair market value adjustment on available-for-sale
securities 7,952 4,834
- ---------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect
all adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of the
results for the interim periods. The results of operations for such
interim periods are not necessarily indicative of results of operations
for a full year. The December 31, 1994 consolidated balance sheet included
herein is derived from the audited financial statements included in the
Company's annual report on Form 10-K for the year ended December 31, 1994,
but does not include all disclosures required by generally accepted
accounting principles. The statements should be read in conjunction with the
significant accounting policies and notes to consolidated financial state-
ments included in the Form 10-K for the year ended December 31, 1994. Certain
amounts have been reclassified to conform to the 1995 presentation.
The Company is a wholly-owned subsidiary of Ford Holdings, Inc., the
common stock of which is owned by Ford Motor Company ("Ford") and Ford Motor
Credit Company, a wholly-owned subsidiary of Ford.
2. IMPAIRMENT OF A LOAN
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan" and No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure", effective January 1, 1995. The effect on the Company's financial
statements was not material.
3. IMPAIRMENT OF LONG-LIVED ASSETS
The Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", which is effective for
fiscal years beginning after December 15, 1995. The Company will adopt the
standard January 1, 1996 and does not expect the impact on the financial
statements to be material.
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instructions H(2)(a), the following narrative analysis
is presented in lieu of Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
[CAPTION]
Revenues, Expenses and Operating Profit
Nine Months Ended 1995 vs. 1994
September 30, Increase/(Decrease)
(In thousands) 1995 1994 Amount %
----- ---- ------- -----
Revenues $488,444 $439,710 $ 48,734 11%
-------- -------- -------- --
Expenses
Sales, admin. & general 50,955 47,715 3,240 7
Interest 204,761 160,793 43,968 27
Depreciation 86,770 93,233 (6,463) (7)
Other expenses 19,867 28,471 (8,604) (30)
------ ------ ------ ---
Total expenses 362,353 330,212 32,141 10
------- ------- ------ --
Operating Profit $126,091 $109,498 $ 16,593 15%
======= ======= ====== ==
Revenues
Consolidated revenues increased $49 million or 11% during the first nine
months of 1995 primarily reflecting a 13% increase in average earning assets.
The increased revenues also result from a $5 million increase in gain on asset
sales, primarily in the Business Equipment Finance business unit.
Expenses
Total expenses for the first nine months of 1995 increased $32 million or
10%, and are discussed below.
Sales, administrative and general expenses increased $3 million or 7% in
the first nine months of 1995. The increase is a result of a new advertising
campaign, higher expenses to support the growing portfolio of earning assets
and normal inflationary increases.
Interest expense increased $44 million or 27% for the nine-month period,
reflecting an increase during the period in average borrowings from $3.52
billion in 1994 to $3.98 billion in 1995 as a result of increased earning
assets and the increase in leverage effected at the end of 1994. In addition,
there was an increase in borrowing rates, which averaged 6.9% in the first
nine months of 1995 compared to 6.1% in the 1994 period.
Depreciation expense on operating lease equipment decreased $6 million
or 7% in the 1995 nine-month period, although the average investment in
the cost of operating lease equipment increased 7% or $69 million during the
period. The reduction in depreciation expense is primarily a result of the
increasingly larger percentage of the operating lease portfolio invested in
railcars, which have longer useful lives and depreciate more slowly than
other operating lease equipment. In addition, the useful life of certain
rail cars was extended at the end of 1994, which reduced depreciation
expense in the 1995 first nine months approximately $2 million.
Other expenses decreased $9 million or 30% in the 1995 first nine months
due in part to a lower provision for losses (see Credit loss experience). In
addition, there was a decrease in operating lease expenses of approximately
$4 million, primarily as a result of a decline in maintenance expenses
incurred by the Rail Services business unit. In 1994, special maintenance
costs were incurred for mandated inspections for 1,475 pressure tank cars
sold at the end of 1994.
Income before taxes on income
Based upon the discussion above, operating profit for the first nine
months of 1995 improved $17 million or 15% compared with the first nine
months of 1994 results.
Taxes on income
Income tax expense was 31.2% of income before taxes in the 1995
nine-month period compared with 31.8% in the same 1994 period. The decrease
is primarily a result of an increase in the percentage of income before taxes
exempt from Federal taxes.
RECENT DEVELOPMENTS
Ford has announced that it is reviewing alternative strategies for the
non-automotive affiliates of its Financial Services operations. Alternatives
being reviewed include the sale by Ford Holdings of all or a portion of the
Company. No decisions have been made at this time.
GENERAL
Credit loss experience
The management of credit exposure is an important element of the
Company's business. The Company reviews the credit of all prospective
customers, and manages concentration exposures by customer, collateral type,
and geographic distribution. It establishes appropriate loss allowances
based on the credit characteristics and the loss experience for each type of
business, and also establishes additional reserves for specific transactions
if it believes this action is warranted. Delinquent receivables are reviewed
by management monthly, and generally are written down to expected realizable
value when, in the opinion of management, they become uncollectible or when
they become more than 180 days past due. Collection activities continue on
accounts written off when management believes such action is warranted.
The table below shows certain information on the Company's allowance for
doubtful accounts related to earning assets for the periods indicated:
Nine Months Ended Twelve Months Ended
September 30, December 31,
1995 1994 1994
----------------- ----------------
[CAPTION]
Allowance for doubtful accounts
(in millions)
Beginning balance $ 58 $ 55 $ 55
Provision 5 9 8
Charge-offs - net (3) (5) (5)
-- -- --
Ending balance $ 60 $ 59 $ 58
== == ==
Percent of earning assets 1.1% 1.3% 1.2%
Total balances of accounts receivable over
90 days past due at period end
(in millions) $ 28 $ 33 $ 37
Percent of earning assets 0.5% 0.7% 0.7%
Total earning assets (in millions)
Investment in finance leases
- net $2,457 $2,301 $2,435
Investment in operating leases
- net 779 699 712
Investment in leveraged leases
- net 375 229 266
Notes receivable 918 728 825
Investment in securities 930 630 700
Inventory held for sale or lease 82 73 87
Investment in associated companies 18 18 18
-- -- --
Total $5,559 $4,678 $5,043
===== ===== =====
During the first nine months of 1995, accounts receivable over 90 days past
due decreased $9 million, primarily as a result of the restructuring of a
$16 million note, collateralized by an aircraft, and the completion of
foreclosure on an office complex, which was collateral for a $9 million note,
both of which were delinquent at December 31, 1994. These decreases in
accounts receivable over 90 days past due were offset in part by two
delinquent notes each in the amount of $11 million, one collateralized by an
office building in Minnesota, and the second collateralized by an office/
retail complex in California. Management restructured the note collateralized
by the office building in Minnesota in October 1995, and it is no longer
delinquent. Foreclosure proceedings on the California office complex are
expected to begin in October 1995. Additions to the allowance for doubtful
accounts decreased $4 million when compared to the first nine months of 1994,
as a result of management's evaluation of the adequacy of the loss reserve and
lower write-offs.
Management has determined that one $10 million senior-subordinated note
will likely become over 90 days past due by the end of the 1995 fourth quarter.
The account has been placed on non-accrual status, and management is
currently reviewing its options.
Earning assets by business unit
The table below summarizes the earning assets by business unit as a
percentage of the total.
September 30, December 31,
1995 1994 1994
---- ---- ----
Business Equipment Financing 23% 29% 27%
Transportation and Industrial Financing 26 24 25
Fleet Services 11 11 11
Municipal and Corporate Financing 20 17 18
Real Estate Financing 9 9 9
Rail Services 11 10 10
-- -- --
Total 100% 100% 100%
=== === ===
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Computation of ratio of earnings to fixed charges.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed the following report on Form 8K: On or about
October 17, 1995, the Registrant reported the filings of Form 8-K reports
by Ford Motor Company and Ford Holdings, Inc. incorporating by reference
news releases dated October 12, 1995, both of which were filed as
exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USL CAPITAL CORPORATION
November 14, 1995 By: /s/ Joseph J. Mahoney
Date Joseph J. Mahoney
Senior Vice President and
Chief Financial Officer
November 14, 1995 By: /s/Robert A. Keyes, Jr.
Date Robert A. Keyes, Jr.
Vice President,
Corporate Controller
Exhibit 12
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited; in thousands) 1995 1994 1995 1994
---- ---- ---- ----
Earnings:
Income before taxes on income
per statement of income $44,946 $38,891 $126,091 $109,498
Add
Fixed charges 71,413 56,362 206,913 163,152
Distributions and proceeds in
excess of net income of associated
companies 151 125 363 341
--- --- --- ---
Income as adjusted $116,510 $95,378 $333,367 $272,991
======= ====== ======= =======
Fixed charges:
Interest on indebtedness including
amortization of debt issue costs and
discount or premium thereon $ 70,683 $55,503 $204,761 $160,793
Interest factor of annual rentals (1) 730 859 2,152 2,359
--- --- ----- -----
Fixed charges $ 71,413 $56,362 $206,913 $163,152
====== ====== ======= =======
Ratio of earnings to fixed charges 1.6 1.7 1.6 1.7
=== === === ===
(1) The interest portion of annual rentals is estimated to be one-third of
such rentals.